NORFOLK NOMINEES LIMITED V KING HC CHCH CIV-2010-409-002966

NORFOLK NOMINEES LIMITED V KING HC CHCH CIV-2010-409-002966 8 August 2011IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2010-409-002966CIV-2011-409-000562BETWEEN NORFOLK NOMINEES LIMITEDPlaintiffAND PAUL ANTHONY KINGDefendantHearing: 30 June 2011Appearances: B A Vautier for PlaintiffDefendant appears in PersonJudgment: 8 August 2011RESERVED JUDGMENT OF CHISHOLM J[1] These proceedings concern three inter-related matters:(a) An application by Norfolk Nominees Limited for the registrar toconduct a mortgagee's sale (CIV-2010-409-002966);(b) Mr King's application for interim and permanent injunctionspreventing the mortgagee's sale, and for other relief (CIV-2010-409- 002966);(c) A summary judgment application by Norfolk Nominees for possession of the mortgaged property (CIV-2011-409-000562).In each case the property concerned is 4 Kidson Terrace, Christchurch, which is owned by Mr King and mortgaged to Norfolk Nominees.[2] An auction had been arranged by the registrar for 24 February 2011 and Mr King's application for an interim injunction was to be heard the day before theauction. However, neither proceeded because of the earthquake on 22 February 2011. Norfolk Nominees has now filed a notice to discontinue the application for the registrar to conduct a mortgagee's sale, but it is proceeding with the application for possession so that it could assess the damage to the property before taking themortgagee's sale any further.Background[3] Norfolk Nominees holds the relevant securities as nominee for Norfolk Management Trust. The trust's affairs are managed by Norfolk Financial Management Limited. It is convenient to collectively refer to these organisations as Norfolk Nominees.[4] Following correspondence between the solicitors for Norfolk Nominees and the solicitors for Mr King, the solicitors for Norfolk Nominees sent a loan offer andsecurity documents to Mr King's solicitors on 29 October 2009. At that time the loan was to be for $270,000 and it was anticipated that the loan would be uplifted on 30 October 2009. That loan did not proceed.[5] After further communication between the solicitors a new loan agreement (the loan agreement) was sent by Norfolk Nominees' solicitors to Mr King'ssolicitors on 5 November 2009. The new loan was for $340,000 over a term of 12 months with interest at 12%. Security was to be by way of a registered first mortgage over the Kidson Terrace property.[6] At that time Norfolk Nominees adopted the stance that the loan did not constitute a Consumer Credit Contract under the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) and the loan documents included an acknowledgment by the borrower to that effect. However, it is now common ground that the loan constituted a Consumer Credit Contract under the Act.[7] The loan agreement and security documents were duly signed by Mr King and returned by his solicitors to Norfolk Nominees' solicitors on 18 November 2009. Their solicitors' certificate certified that the loan agreement and security documentswere executed by Mr King on 17 November 2009 and that full initial disclosure was made that day.[8] When the loan was drawn down on 18 November 2009 the first instalment of interest for the broken period from 30 October 2009 to 10 November 2009 amounting to $1206.45 was deducted. According to Rochelle Miskelly, a legal executive with Norfolk Nominees' solicitors, she dated the loan agreement 30 November 2009 after it was received back from Mr King's solicitors. The document should have been dated 17 November 2009, but nothing turns on that.[9] The interest repayment schedule in the loan agreement required the first monthly instalment of interest following the broken period up to 10 November 2009 ($3400) to be paid on 10 December 2009. That payment was not made. However, a payment of $2300 was received by the mortgagee on 21 December 2009.[10] Two days later, on 23 December 2009, Norfolk Nominees issued a notice under s 119 of the Property Law Act 2007. Mr King responded by lodging a claim with the Disputes Tribunal alleging that the loan and mortgage were in breach of the CCCF Act and the Fair Trading Act 1986.[11] In its decision issued on 9 February 2010 the Disputes Tribunal found that the loan constituted a Consumer Credit Contract under the CCCF Act and that a"financial fee" of $9400 that had been charged was unreasonable. But the Tribunalrejected Mr King's allegation that the loan was oppressive and concluded that there was no valid claim for statutory damages under s 88 of the CCCF Act.[12] Later Norfolk Nominees made application for the Tribunal's decision to be recalled and clarified. In a supplementary decision issued on 16 March 2010 the Tribunal reduced the "financial fee" by $8200 pursuant to s 42 of the CCCF Act and directed:The contract documentation should be amended so that the total capital borrowed is $331,800 and the amount of interest payments should be recalculated accordingly as of the date of commencement of the loan.[13] In the meantime, Norfolk Nominees had issued a second Property Law Act notice. This reflected that it had not received any further payments since the payment of $2300 on 21 December 2009. Norfolk Nominees then took steps to sellthe property by way of mortgagee's sale and an auction date was arranged. That auction was cancelled late in the piece because Norfolk Nominees decided that the Disputes Tribunal decision required it to make another initial disclosure under the CCCF Act.[14] On 14 May 2010 a disclosure statement based on the new loan amount (as amended by order of the Disputes Tribunal and showing new interest payments recalculated in accordance with that order) was sent by registered post to Mr King. This new disclosure statement was described as a disclosure statement under s 17 of the CCCF Act.[15] When no further payments were received another (the third) Property Law Act notice was issued on 26 May 2010 by Norfolk Nominees. Steps were then taken to advertise the sale of the property.[16] By letter of 1 July 2010 Mr King's solicitors informed Norfolk Nominees'solicitors that the notice issued on 26 May was invalid, Norfolk Nominees were not entitled to enforce any rights under the loan contract or mortgage, and that Norfolk Nominees had failed to make valid disclosure. It was alleged that the disclosure document issued on 14 May 2010 contained errors, including the interest commencement date of 30 October 2009 which was prior to the date of the loan contract and before the drawdown of the loan. It was also alleged that Norfolk Nominees was precluded by s 99 of the CCCF Act from enforcing the loan contract because it had not completed initial disclosure as required by the Act. A claim for damages under s 88 of that Act was flagged.[17] Those allegations were denied by Norfolk Nominees' solicitors in a letter to Mr King's solicitors dated 2 July 2010. They said that Mr King asked to draw down the loan on 30 October 2009 and that interest commenced on that date because Norfolk Nominees was then in a position to advance the funds. They claimed thatthe delays in drawdown arose because Mr King was negotiating with the outgoing mortgagee of Kidson Terrace.[18] On 6 August 2010 Norfolk Nominees' solicitors informed Mr King that he had until 5 September 2010 to vacate the premises and that summary judgment proceedings seeking an order for possession would be issued if the premises were not vacated. They also noted that the decision of the Disputes Tribunal was final and binding in relation to any claim for statutory damages and that in any event there was a cap of $3000 on such damages.[19] Norfolk Nominees then applied to the registrar of the High Court to conduct a sale of the Kidson Terrace property. In response Mr King sought an interim injunction to prevent that sale proceeding and provided Norfolk Nominees with acopy of his documents on a "Pickwick" basis. Then, as already recorded, the February earthquake intervened.[20] Norfolk Nominees' application for summary judgment was filed on 13 April 2011. It is opposed by Mr King on similar grounds to his opposition to themortgagee's sale.[21] Apart from the payments already mentioned, there have not been any payments under the mortgage. In terms of the loan agreement the principal sum fell due for repayment on 30 October 2010.Norfolk Nominees' application for summary judgment[22] Norfolk Nominees seeks an order by way of summary judgment for possession of the property at 4 Kidson Terrace within 10 days of the service of such an order. It relies on the following grounds:(a) Mr King has defaulted under the mortgage.(b) A notice under s 119 of the Property Law Act requiring Mr King to remedy the defaults has not been complied with.(c) Norfolk Nominees' power to enter into possession of the mortgageproperty has arisen.(d) Mr King has no defence to Norfolk Nominees' claim.A detailed affidavit has been sworn by Rochelle Miskelly in support of the application for summary judgment. That affidavit records the history of the matter and exhibits the relevant documents.Mr King's response[23] To a large extent Mr King's response to the application for summaryjudgment seeking possession reflects his response to the application for the registrarto conduct a mortgagee's sale. He contends that Norfolk Nominees has failed tocomply with the CCCF Act in numerous respects, those breaches remain unremedied, there has accordingly been no default, and the mortgagee is thereby precluded from enforcing, or attempting to enforce, any of its remedies.[24] In particular Mr King alleges that there have been breaches of the disclosure requirements (ss 17, 18 and 32 of the Act), breaches of the provisions concerning interest (ss 38 and 39) and breaches of the provisions concerning fees (ss 40 and 42). He complains that despite these breaches Norfolk Nominees has "pushed ahead" with four attempted mortgagee's sales. He claims that the conduct of the mortgageehas been "oppressive" in terms of the CCCF Act.[25] Injunctive relief (either interim or permanent) is sought under both the CCCF Act and at common law. Statutory damages under that Act are also sought. Mr King seeks an order discharging the Norfolk Nominees mortgage without further payment or, alternatively, an order for statutory damages of $330,800.Should there be injunctive relief?[26] Numerous issues have been raised by Mr King and it is appropriate to begin with the issue of disclosure which underpins most of his arguments.Initial disclosure[27] Section 17 of the CCCF Act provides:17 Initial disclosure(1) Every creditor under a consumer credit contract must ensure that disclosure of as much of the key information set out in Schedule 1 as is applicable to the contract is made to every debtor under the contract—(a) before the contract is made; or(b) within 5 working days of the day on which the contract is made.(2) Every creditor under a consumer credit contract must ensure that a copy of all of the terms of the contract not disclosed under subsection (1) (other than terms implied by law) is given or sent to every debtor under the contract—(a) before the contract is made; or(b) within 5 working days of the day on which the contract is made.(3) For the purposes of subsection (2), the copy of the terms of the contract must be given or sent in the same manner that disclosure is made under section 35.Norfolk Nominees contends that it made initial disclosure in accordance with this section and that such disclosure met the standards specified in s 32 and the method described in s 35.[28] Mr King denies that this is the case. He contends that Norfolk Nominees'attempts at disclosure were both defective and ineffective. Amongst other things he contends that the drawdown date of 30 October 2009 was wrong and that Norfolk Nominees was not entitled to charge interest from 30 October 2009. He also contends that fees based on a percentage were illegal. Moreover, he argues, the disclosure document was wrong to say that it was not a Control Credit Contract and that the calculation of interest at one per cent per month was wrong because it does not equate with 12% per annum.[29] I am satisfied that initial disclosure of the loan agreement (as it stood before the order of the Disputes Tribunal) was made on 17 November 2009 in accordance with s 17 of the CCCF Act. This is confirmed by the contents of the loan agreement,Mr King's signature, and his solicitors' confirmation that "Full initial disclosure hasbeen made to the borrowers on 17 November 2009" and the borrower "has been handed and has acknowledged receipt of a copy of the completed mortgage".[30] Clearly that disclosure was within the timeframe specified in s 17(1). The fact that the loan agreement was later dated 30 November 2009 is beside the point. The evidence establishes that Norfolk Nominees' loan offer was actually accepted by Mr King on 17 November 2009. Thus the loan contract between the parties came into existence at that time. While Norfolk Nominees' did not then consider that the loan constituted a Consumer Credit Contract for the purposes of the CCCF Act, that is also beside the point because, perhaps fortuitously, Norfolk Nominees made initial disclosure.[31] Mr King challenges the legality and accuracy of the "drawdown" date and interest charges. However, the loan agreement specified that 30 October 2009 wasthe "Availability Date" and it was clear from the interest calculation schedule(Schedule 3) that interest was to commence on 30 October 2009. Norfolk Nominees contends that this commencement date reflected that Mr King had initially requested that the advance be made on that day, that money had been set aside, and the letterfrom its solicitors to Mr King's solicitors of 29 October 2009 confirmed that "...interest will therefore commence from tomorrow 30 October 2009".[32] Regardless of the underlying reasons, the loan contract provided for interest to run from 30 October 2009. The first instalment of interest for the broken period ending on 10 November 2009 amounted to $1206.45. Thereafter there were regular monthly instalments until a further broken period at the end of the term of the loan. All of this was clearly agreed and stated in the loan contract and no issue was taken by Mr King or his solicitors at the time.[33] Under s 37(2) of the CCCF Act the loan contract was required to specify the interest rate in terms of an annual interest rate. In accordance with that provision theannual interest rate was specified at 12%. Despite Mr King's argument to thecontrary, there was no breach of s 38 of s 39. Interest only became payable at the end of the period to which it related and the monthly interest instalments were determined by applying the annual interest rate divided by 12. Nor was there any breach of s 40 in relation to the default interest rate which was 10% above the standard interest rate.[34] Finally, I am satisfied that the disclosure standards contained in s 32 and the requirements as to how disclosure is to be made in s 35 were met. This meant that Mr King had the right to cancel pursuant to s 27 for the period of three working days after the disclosure was made on 17 November 2009. He did not exercise that right.[35] I therefore reject Mr King's arguments relating to initial disclosure.Implications of Disputes Tribunal ruling[36] Disclosure is required under Subpart 2 of the CCCF Act in relation to the following matters: "initial disclosure", "continuing disclosure", "variationdisclosure", and "request and guarantee disclosure". The issue is whether Norfolk Nominees was required to make further disclosure under any of these provisions following the Disputes Tribunal ruling.[37] As its name suggests, "initial disclosure" under s 17 is required at the beginning of the credit process. That is apparent from the statutory requirement that initial disclosure under a contract must in terms of s 17(1) be made:(a) before the contract is made; or(b) within 5 working days of the day on which the contract is made.This disclosure regime would not make sense if initial disclosure was required for reasons that were not apparent for many months after the loan contract was made (byreason of the Tribunal's decision). It is also apparent from the structure of the CCCF Act that the other types of disclosure required by Subpart 2 will arise after initial disclosure.[38] Consequently it is difficult to see how s 17 required further "initial"disclosure. All that was required was a recalculation of the interest payments as at the date of the commencement of the loan as required by the Disputes Tribunal and notification of the recalculated payments. Unless some other provision of the CCCF Act requires formal disclosure in terms of the Act, that notification could be informal.[39] "Continuing disclosure" as required by ss 18 and 19 does not apply. Those provisions relate to revolving credit contracts and s 21(1)(a) states that ss 18 and 19 do not apply where, as is the case here, the amount of the advance was known when the loan agreement was entered into. The fact that the amount of the loan was altered by the Disputes Tribunal does not bring this case any closer to those sections.[40] The third possibility is "variation disclosure" under ss 22:22 Disclosure of agreed changes(1) Every creditor under a consumer credit contract must ensure that disclosure of the following information is made to every debtor under the contract if the parties to the contract agree to change the contract:(a) full particulars of the change:(b) any other information prescribed by regulations to be information that must be disclosed under this section.(2) Disclosure under this section must be made before the change takes effect.(3) Disclosure is not required under this section in relation to a change that—(a) reduces the obligations that the debtor would otherwise have, unless the obligations are reduced following an application under section 55; or(b) extends the time for payment of any payment to be made under the contract, unless the time for payment is extended following an application under section 55; or(c) releases the whole or any part of a security interest relating to the contract; or(d) changes the place where payments are to be made.This is not a situation where the parties to the contract have agreed to change it within the contemplation of s 22(1). In any event, s 22(3)(a) applies.[41] The remaining sections concerning disclosure are ss 23 and 24. Section 23 does not apply because the creditor has not exercised a power under the contract to change any of the matters specified in s 23(1). And s 24 does not apply because there has been no request for disclosure.[42] Even if I am wrong about the application of s 17 (which is the only section that could conceivably apply), Norfolk Nominees took the precaution of making a further "initial" disclosure on 14 May 2010. I am satisfied that if this had been a legal requirement the disclosure of 14 May would have satisfied the requirements of ss 17, 32 and 35.[43] Mr King challenged the contents of the May disclosure. His challenge based on drawdown and interest has already been traversed and the conclusions already reached apply equally to this disclosure (if it was in fact required). Mr King also claims that Norfolk Nominees were not entitled to deduct the instalment of interest amounting to $1206.45. However, by the time the loan was advanced that instalment of interest was payable and under those circumstances I am not aware of any valid reason why it should not have been deducted.[44] It was also argued by Mr King that even if the Court found against him on those matters, the disclosure "was still wrong" because the fees were unreasonable.But the fees issue was traversed by the Disputes Tribunal which made the reduction that it considered appropriate. I do not see any reason to revisit its decision. Mr King also noted that his full name was not included in the disclosure statement and that this contravened the statutory requirements. However, s 32(2) allows a disclosure statement to be included in one or more documents. The letter accompanying the disclosure statement was addressed to Mr King and forms part of the disclosure statement. Thus his name was specified. Although his full Christian names were not stated, in the circumstances this was not a matter of substance.Oppression/statutory damages[45] Mr King complains that the loan documents and conduct of Norfolk Nominees was oppressive. He relied on the decision of the Court of Appeal Bartle v GE Custodians.1 However, that decision was later overturned by the Supreme Court: GE Custodians v Bartle.2 In any event, I do not believe that either decision is of particular significance in this case.[46] As already mentioned, the Disputes Tribunal considered whether there had been oppression by virtue of the conduct of Norfolk Nominees or the terms of the loan. The Referee found:The other claims made by the applicant have not been established. I do notconsider that the respondent's conduct, or the terms of the loan, can be characterised as "oppressive", and the respondent did not behave in an unconscionable way. The applicant wanted money urgently, and was to some extent careless in safeguarding his own interests. He was certainly unwise to sign the loan offer without obtaining legal advice. There was nothing misleading or deceptive in the conduct of the respondent, and no breach of the Fair Trading Act 1986 was shown. If the brokers involved had in any way misled the applicant, that was a matter between him and them, and not the concern of the respondent. The applicant does not come into any of the categories of statutory damages prescribed in s 88.Of course those findings arose from events that had occurred before the Disputes Tribunal hearing. While I am not prepared to revisit the Tribunal's findings, I need to consider whether subsequent events might have altered the Tribunal's findings.[47] I have not been persuaded that this is the case. Although the auction following the Disputes Tribunal decision seems to have been cancelled relatively late in the piece, it is not surprising that the mortgagee decided to take the precaution ofmaking a further "initial" disclosure. As far as the second auction is concerned, the intervention of the earthquake was beyond everyone's control. Nor have I beenpersuaded that any other actions of the mortgagee since the Disputes Tribunal hearing have given rise to oppression, unconscionability, or to a claim for statutory damages under the CCCF Act.1 Bartle v GE Custodians [2010] 3 NZLR 6012 GE Custodians v Bartle [2010] NZSC 146Discretion[48] Injunctive relief, whether interim or permanent, is discretionary. In this case Mr King has not met any interest instalments since the part payment of $2300 on 21 December 2009. It is now approaching 12 months since the principal sum became repayable. In addition there are rates arrears.[49] Mr King seems to have pinned his hopes on establishing deficiencies in the loan process which would render the securities unenforceable by virtue of s 99 of the CCCF Act. I have not been persuaded that any such deficiencies exist. Even if I am wrong about that, the failure to make payment since 2009 indicates that this is not a case where the Court could properly exercise its discretion in favour of injunctive relief, either interim or permanent.Norfolk Nominees' claim for possession[50] The conclusions already reached mean that Mr King does not have a defence to the claim by Norfolk Nominees for possession. Mr King has defaulted under the mortgage and has not complied with the most recent property law notice requiring him to remedy that default. Clause 19 of the mortgage entitles the mortgagee to enter into possession at any time after default.[51] Norfolk Nominees is therefore entitled to summary judgment.Result[52] Mr King's application for interim/final injunctions and statutory damages in CIV-2010-409-002966 is dismissed.[53] Norfolk Nominees' application for an order for possession in CIV-2011-409- 000562 is granted. There will be an order for possession in terms of paragraph 1 of the application filed on 13 April 2011.[54] Norfolk Nominees is entitled to costs on a 2B basis in relation to the applications referred to in [52] and [53] above. However, there will be no order as tocosts in relation to Norfolk Nominees' application for the registrar to conduct amortgagees sale which was discontinued on 28 June 2011.Solicitors:Glaister Ennor, P O Box 63, AucklandCopy to Mr King, 4 Kidson Terrace, Christchurch